Returning to South Africa: key considerations for South Africans abroad

There has been a noticeable increase in the number of South Africans returning home in recent years, particularly coming from countries like the UK, Australia and the US, often after years of living abroad. Among them are skilled professionals and recent retirees, together with their families, who initially left South Africa to seek better opportunities overseas.

It is difficult to pinpoint any single factor behind the increase, but drivers seem to include the impact of COVID-19 pandemic, changes in global mobility, evolving economic opportunities and a desire for family reunification.

What is certain, however, is the importance for those considering repatriation of planning ahead to ensure a smooth and efficient transition, particularly if you’re coming from countries like the UK, Australia and the US.

There are several key considerations for returning expatriates to consider, including financial and tax planning, as well as asset management and protection.

Understanding South Africa’s tax system
South Africa operates a residence-based taxation system, meaning that tax residents are taxed on their worldwide income, regardless of where that income is earned.

There are two main criteria for determining tax residency: the ‘ordinarily resident’ test and the ‘physical presence’ test. If a South African returning from abroad meets these tests, he /she will be taxed on both local and foreign income.

This has significant implications for South Africans who have earned income abroad and it is essential to explore available strategies to minimise their tax liabilities. Placing overseas assets into a well-structured offshore trust can be a highly effective way to shield them from potential exposure on capital gains and estate duty.

Benefits of Offshore Trusts

• Asset Protection: Offshore trusts provide a layer of protection from political and economic instability. In South Africa, where there are ongoing concerns about security and the stability of the economy, this protection can be invaluable.
• Legacy: The individual may wish to ensure that wealth accumulated over a lifetime is not dissipated or divided up, but is preserved as one fund. Such a fund can accumulate further while making provision for payments to members of the family as required but preserving capital for later generations.
• Protecting the weak: A trust allows the settlor to provide for those who may be unable to manage their own affairs such as infant children, the aged or persons suffering from certain illnesses.
• Tax efficiency: By placing assets into an offshore trust, South Africans can reduce or eliminate various taxes, including estate duty, income tax and capital gains tax.
• Succession planning: Offshore trusts are useful for individuals with significant wealth or complex estates, especially those who have built assets abroad. They can help ensure that wealth is passed on to beneficiaries in a tax-efficient manner, avoiding lengthy probate processes.
• Privacy: Offshore trusts offer a high level of confidentiality because the assets and the beneficiaries of the trust do not need to be publicly disclosed. This can be particularly appealing for individuals who wish to maintain discretion regarding their wealth.
• Access to assets: Unlike personal estates, where assets may be frozen during the finalisation of a deceased estate, trust assets always remain accessible. This ensures that heirs can access their inheritance without unnecessary hardship and delays.

While offshore trusts offer numerous benefits, it is essential to work with qualified legal and tax professionals to ensure full compliance with both South African and international laws.

“For South Africans living abroad and considering a return, professional advice is crucial for navigating the complexities of South Africa’s tax laws and ensuring that assets are structured in the most efficient way possible,” said Leah Mannie, Pensions and Business Development Manager at Sovereign Trust (SA)

“The global tax and regulatory landscape is continually evolving, and individuals must stay informed about the latest developments or proposals in tax, estate planning and compliance, or any other factors that could affect their financial strategy.”

For further information, please contact Leah Mannie below.